Q&A: Adding value to commercial-lines insurance with telematics
Chris Parker, specialty auto consultant and assistant vice president for product underwriting, Zurich North America, on the difference in approach to personal-lines and commercial-lines telematics insurance products.
As the telematics proposition becomes more essential in Zurich’s underwriting process, Chris Parker shares his understanding of the unique perspective fleet managers bring to purchasing insurance.
Speaking to TU’s Jan Stojaspal at Insurance Telematics USA 2013, he also talks about the different dimensions in selling commercial-lines insurance products versus basic personal-lines car insurance, and how telematics can add value.
It’s my understanding that there is quite a difference between commercial lines and personal lines when it comes to usage-based insurance (UBI). Can you highlight the key differences?
In personal lines, it’s more about gaining insurance discounts based on scheduled rates. With commercial lines, it’s really more about helping customers achieve better and sounder risk management programs with the use of telematics.
But I think one of the key differentiators is [that] in commercial lines the customer is looking to gain significant benefits from the telematics device. They’re not typically getting a telematics device purely for the insurance advantage, which is the case in personal lines.
How does that change the client relationship?
It changes it quite a bit.
In personal lines, you dictate to the client typically the type of UBI device that will be installed in the vehicle.
In commercial lines, what’s going to happen is a customer is going to select a device that works best for their operation. They’re looking to obtain operational efficiencies, they’re looking to cut their costs, they’re looking to achieve significant advantages from a telematics device. And they’d like insurance to be part of that, but it typically isn’t the main incentive for them to invest in a telematics system.
For instance, large trucks are required to comply with the hours-of-service regulations issued by the FMCSA. You certainly don’t have that concern with personal lines.
That must require quite a bit of flexibility at your end. It must also take a lot of time to finalize.
That’s a very good point. One of the things to recognize is that, when you a buy a [personal-lines] insurance product, it has a definitive time frame associated, inception date and policy expiration date. With commercial lines, you certainly have that, but you don’t necessarily have the same time frame associated with the investment into a telematics device.
Say, I’m looking to purchase it as a commercial motor carrier, [and] I’m looking to purchase it to support operations and enhance operational efficiency. I’m going to spend a lot of time researching that device because my whole operation might depend on what that device is going to tell me, how it schedules my fleet, how it moves my men, how it works with vehicle utilization.
You don’t have that with personal lines. Therefore, for commercial fleets, the timeframe associated with putting the system in place could be considerable. Typically, we see six months before even the first device is put in as a pilot program.
So you can’t tell somebody, ‘We’re signing you up for a policy today, put a system in the vehicle and expect to have the insurance advantages you’d have with personal lines.’
What that has done is that Zurich has had to work on developing relationships with our customers. That’s one of the things it requires. Zurich looks to develop a long-term relationship with a customer that benefits everybody. … So we look to develop those relationships. That also supports the concept that there is a significant delay in implementing a telematics system.
Whereas in the personal-lines space, it’s volume, volume, volume.
Right. If you think about the UBI discussions that we’ve had at the conference today [Insurance Telematics USA 2013], most of them were talking about bringing new customers in.
Certainly, Zurich wants to use a telematics proposition as a marketing opportunity. But we think the main advantage will be in retaining customers, developing that relationship … where we come to understand each other better. Once an underwriter understands a customer better, they can give a more accurate pricing structure as well.
Is insurance telematics a tough sell to the fleet segment? I am just wondering what the awareness is and how much selling is required.
The challenge with the selling is … when we think about a telematics device from an operational point of view, it’s typically a different buyer than an insurance buyer. Typically an insurance buyer is a risk manager or a CFO.
When you start talking about telematics devices for operational enhancement, it’s typically going to be your operations manager, or it might be sales, or it might be your safety guy. But it typically isn’t the same buyer as the buyer for the insurance product. And that causes some challenges. Sometimes you have to sell to both parties. Certainly you don’t have to deal with that in personal lines.
Is there some advice you would give to fleet managers as they’re considering upgrading to new hardware? Are there things they need to be aware of to facilitate the relationship with an insurance provider?
It’s important they make it clear to the insurance underwriters or risk engineers that are assessing their account how they’re using that telematics data to enhance their program. We’re looking to learn how they use the telematics system to actually improve behavior.
It’s not just a recording system – that’s more representative of the personal-lines environment. So it’s important that they sell their program to the insurance company, or that the insurance company sends somebody out that really asks the right questions.
That’s one of the most challenging things, to make sure you ask the right questions. What enhancements do you expect to your risk management program from the implementation of this telematics device?
Many customers don’t even recognize that there are opportunities to improve their risk management profile. They’re often buying a telematics device just, say, for tracking. There are certainly much more robust capabilities in almost all of the telematics metrics now.
(For more on this, see Selling insurance telematics to commercial fleets.)
Jan Stojaspal is the executive editor of Telematics Update.
For all the latest telematics trends, check out Telematics for Fleet Management Europe 2014 on March 12-13 in Amsterdam, The Netherlands, Content and Apps for Automotive Europe 2014 on April 8-9 in Munich, Germany, Insurance Telematics Europe 2014 on May 6-7 in London, Telematics India and South Asia 2014 on May 28-29 in Bangalore, India, Insurance Telematics Canada 2014 on May 28-29 in Toronto, Telematics Detroit 2014 on June 4-5 in Novi, Michigan, and Advanced Automotive Safety USA 2014 on July 8-9 in Novi, Michigan.
For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.